Michael Jacobs, the Senior Vice President for Supply Chain at Ferguson
In 2022, I wrote an article called The Best Supply Chain Company You Have Never Heard Of. The article was about Ferguson PLC, a value-added distributor of plumbing and heating products. Ferguson has an extensive and complex supply chain. When I had an opportunity to catch up with Michael Jacobs, the senior vice president of supply chain at Ferguson, I leapt at the chance.
Ferguson provides plumbing and heating products to 9 specialist customer groups – over a million customers – in the US and Canada. They sell over a million products that range in size from very small copper fittings to 40-foot pipes. The company sources goods from 36,000 suppliers out of 30 nations. 22,000 containers move annually through 52 ports. They operate both their own fleet and a dedicated fleet, that has 5,300 trucks. These trucks range in size from semi-trucks to delivery vans. The goods flow through 3 import centers, 14 strategically located distribution centers in North America, 106 final-mile shipping hubs, and nearly 1,700 branch locations. Across the US, Ferguson has 6.5 million square feet in 10 distribution centers and 35 million square feet across its branch network.
The following interview has been edited for clarity.
Steve Banker
“So Michael, the story continues. Tell me what you have been up to!”
Michael Jacobs
“Well, the last time we spoke, we had just begun our journey with our market distribution center (MDC) strategy. We have 10 regional distribution centers in the United States and we have one in Canada. We consider ourselves best in class when it comes to next-day delivery. But we recognize that the industry is moving to even more speed! So the concept of building a network capable of efficient same-day delivery became an important strategic capability.
“Due to significant company growth, our distribiution network was full and we needed to make a decision on how we would expand for the future. Instead of increasing the square footage of our exisitng regional DCs, we decided to open up what we’re calling “market distribution centers.” A market distribution center has the capability of both regional distribution center and that of a final mile ship hub. Our goal was to position inventory closer to the customer in the major MSAs (metropolitan statistical areas) and then be able to bypass the branches to mitigate touches and go directly to customers from these Market Distribution Centers improving customer service speed and reducing touches throughout the Ferguson network.
“By doing that, we’d be able to do very efficient same day and next day deliveries with our private fleet. In addition, instead of putting more inventory into large regional buildings, we pushed more out to the local markets providing our customers better access to inventory. We opened our first market distribution center in Denver, our second one in Phoenix, and our third in Houston. We also opened one in Toronto and we have one opening up in the next several months in Nashville.
“When we looked at the kind of products that we were shipping to our customers, we noted that the AutoStore robotic technology would be highly applicable to our product mix as it could be used for picking almost 60% of daily order lines, and in an area as small as 15,000 square feet which is ergonomically easier for the team and provided a platform of enhanced space utilization.”
Steve Banker
When I think of the AutoStore solution. I think of a solution with a dense grid structure containing bins stacked on top of bins with products in them – like a big 4D Rubik’s Cube. There are robots on top of the grid. The robots are doing a combination of digging, getting to bins that are at the lower levels, moving them out of the way, selecting the bin that is needed, and taking it where it is needed. This is being orchestrated by the software that controls this automatic storage and retrieval system. That software is really the secret sauce of AutoStore.
Michael Jacobs
“Yes.
“And so we’ve begun the journey into robotics in all of our market distribution centers we married that with mechanization and sortation, and we can now service customers who call us up or pick up at branches in a much more expeditous manner. What used to take us an hour, we can now service customers, in many cases, under 10 minutes, and our picking speed is as much as 300% more productive than when we did it manually (picking out of shelving or out of racking in our buildings).” The AutoStore solution is designed to provide an ergonoimically safer picking environment for our team.
Steve Banker
“This is a scalable solution, correct?”
Michael Jacobs
“The beauty of AutoStore is it is a scaleable solution. The storage goes 20 feet high and the system can be expanded outward with the growth of Ferguson. All you need is a perfectly flat floor to do that, and you can expand the robotic system, as needed, to suite our business product mix growth.”
Steve Banker
“What is the payback?”
Michael Jacobs
“We modeled just over three years. We have a labor management system and can actively measure productivity in our DCs. We know what it costs to pick out of a rack or off of a shelf or out of AutoStore. We know what it takes to deliver to the dock and the speed it takes to do meet customer needs.”
Steve Banker
“In short, you have a robust way to calculate the payback.
“Let’s examine the flow in a bit more detail. So the order comes in, it goes to AutoStore, a bin moves to a pack station, and then it goes on a conveyor to the shipping dock?”
Michael Jacobs
“An ordered product can either goes to the shipping dock or directly to the branch located in the MDC. All MDCs have branches, so customers come in to pick up products that day, whether they go into the branch and just select items or they come in to pick up an order online / called in.
‘We also have 24 / 7 locker pick-up availability in these new Market Distribution Centers, so customers can come in at any time. They get a QR code, scan it, come into the locker area, which is in a secured MDC location, and pick up their products anytime.
‘If an order is being delivered to the branch, a conveyor takes the goods to the branch. If goods are going to a locker pickup, they come down to the branch, and then they’re put into lockers. Or if the goods are going to the shipping dock, they go to a sorter, and the product is then sorted by door and stop, and is then loaded onto the trucks from the conveyor.
“The first MDC opened in Denver during 2022.”
Steve Banker
“And how long did it take to get that up and running?”
Michael Jacobs
“If we need to build the building, it is 18 to 24 months. The building in Houston was already there and therefore, we were able to move into that building 8-months faster than if we built it ourselves.
Steve Banker
“Besides AutoStore, who are your vendors and consultants?”
Michael Jacobs
“Our warehouse management system is Körber Supply Chain Solutions – HighJump when we bought it.
“In Nashville, we are looking at adding a second level of robotics, a shuttle system manufactured by TGW. The totes will come out of AutoStore and is then fed throughout the day into the TGW system. Once we have all the daily customer orders, we then optimizae the routings. Once the optimization is completed, the shuttle system will then release the product in the order in which we’re going to load the truck. This will eliminate all the manual sortation that happens on the shipping dock.
“Tompkins is our distribution / fulfillment center design company. We are using the Wynright warehouse control system. We implemented these systems using our internal IT and engineering teams, but we used Tompkins as advisors during the entire process.”
Steve Banker
“Better customer service is clearly one of the drivers for this project. I know you can’t attribute any gains in customer service to any one thing, but have your customer service scores improved?”
Michael Jacobs
“We look at Net Promoter scores and OSAT (overall satisfaction). We have independent third parties that measure that for us. Our sales and supply chain teams are well-aligned on the service levels that define customer success. We have seen improvements as we give our customers better access to more inventory, faster service levels, and these Market Distribution Centes offer a more efficient customer experience. Ferguson customer satisfaction scores are at an all time high right now.
“Our company’s culture is built around customer satisfaction. We always try to find a way to say “yes” to our customers and every associate in our company is focused on customer satisfaction. This is a core value within Ferguson and we’re relentless with that.
“There are a lot of companies out there who are really good at transactional work. At Ferguson, we are a project company. So, as we are challenged to support our customers’ most complex projects, our focus is to deliver simple, successful , and sustainable solutions.”
“So, when you look at opportunies such as mega projects (these are large, complex projects that are out there in the market today under several US government funded bills such as the “Infrastructure Investment and Jobs Act, CHIPS and Science Act, and the Inflation Reduction Act of 2022.” These are big areas of opportunity for a like company Ferguson that excels in working through project complexity and being a trusted partner to our customers.”
Steve Banker
“I loved catching up with you.”
Michael Jacobs
“Thank you, Steve. I appreciate that and I always enjoy my conversations with you.”